March 17, 2020
Build a home instead of buying an existing one? This is a reality and there are plenty of choices to go around; FHA One-Time Close construction loans, the VA construction loan equivalent, USDA construction loans, and even conventional mortgages to build on your own land instead of buying an existing home.
These loans all have features that are different than existing construction loans. They include how long it takes for you to move in, when your mortgage payments begin, and the kinds of features your home may have.
Construction loans can be a bit more complex than a new purchase loan for a house in a typical neighborhood, and some read articles like this and want to be ready to commit, but an equal number of people read this but aren’t quite ready to commit just yet.
But the information here can help those people too, because planning is EVERYTHING when it comes to building a home.
One-Time Close Construction Loans: Ideal If You Are Not In A Hurry
Building a home takes time and that extra time is well worth the wait. Are you in a hurry to occupy the home? Building on your own lot is not for you. Additional time is required to approve floor plans, hire builders, and apply for construction permits.
That process may take longer than you think depending on the housing market. If you have an urgent, pressing need for housing, consider an FHA existing construction loan offered for a one-to-four unit property rather than a construction loan.
Construction Loans For First-Time Home Buyers
Are you a first-time home buyer? Don’t assume you are out of the running for a construction loan–you are not. Some lenders require slightly higher FICO scores for these mortgages and you will need to know what requirements apply for loan approval.
You should work on your credit the same way you would for any other kind of major investment when considering a one-time close loan to build a house on your own land.
Limits Established By The Lender: Ask Before You Apply
Home loan limits are not our focus here. Instead, we’re discussing limits on the size and type of property you can build. Does your lender restrict construction loans to single-unit properties? Does your lender need a higher credit score?
Does your loan officer have other options for a construction loan if the version of the loan doesn’t do what you need it to? You may find an advantage with a VA construction loan (if you qualify) that isn’t available with other versions–for example, the VA construction loan may include a no-money-down option depending on the size of the mortgage and other variables.
Home Loan Payments May Start Later Than You Think
If you apply for a 30-year loan in the last months of 2020, and the home is not completed until early 2021, your mortgage payments may begin then.
But that does not mean you are off the hook. Borrowers are still required to fully pay off the loan within the 30-year loan term or 15-year loan term (depending on which you choose) no matter when your payments actually begin. The loan must fully amortize within the term of the loan.
That means you may face a choice of paying more each month to make up for the months you were not paying (because you could not occupy the property yet because the construction was still happening) OR a balloon payment at the end of the loan.
Different types of home loan (conventional, VA, FHA, USDA) will have different rules in this area. Know before you commit!
Want More Information About One-Time Close Loans?
One-Time Close Loans are available for FHA, VA and USDA Mortgages. These loans also go by the following names: 1 X Close, Single-Close Loan or OTC Loan. This type of loan allows for you to finance the purchase of the land along with the construction of the home. You can also use land that you own free and clear or has an existing mortgage.
We have done extensive research on the FHA (Federal Housing Administration), the VA (Department of Veterans Affairs) and the USDA (United States Department of Agriculture) One-Time Close Construction loan programs. We have spoken directly to licensed lenders that originate these residential loan types in most states and each company has supplied us the guidelines for their products. We can connect you with mortgage loan officers who work for lenders that know the product well and have consistently provided quality service. If you are interested in being contacted to one licensed construction lender in your area, please send responses to the questions below. All information is treated confidentially.
OneTimeClose.com provides information and connects consumers to qualified One-Time Close lenders in an effort to raise awareness about this loan product and to help consumers receive higher quality service. We are not paid for endorsing or recommending the lenders or loan originators and do not otherwise benefit from doing so. Consumers should shop for mortgage services and compare their options before agreeing to proceed.
Please note that investor guidelines for the FHA, VA and USDA One-Time Close Construction Program only allows for single family dwellings (1 unit) – and NOT for multi-family units (no duplexes, triplexes or fourplexes). You CANNOT act as your own general contractor (Builder) / not available in all States.
In addition, this is a partial list of the following homes/building styles that are not allowed under these programs: Kit Homes, Barndominiums, Log Cabin or Bamboo Homes, Shipping Container Homes, Dome Homes, Bermed Earth-Sheltered Homes, Stilt Homes, Solar (only) or Wind Powered (only) Homes, Tiny Homes, Carriage Houses, Accessory Dwelling Units and A-Framed Homes.
Your email to info@onetimeclose.com authorizes Onetimeclose.com to share your personal information with a mortgage construction lender licensed in your area to contact you.
- Send your first and last name, e-mail address, and contact telephone number.
- Tell us the city and state of the proposed property.
- Tell us your and/or the Co-borrower’s credit profile: Excellent – (680+), Good – (640-679), Fair – (620-639) or Poor- (Below 620). 620 is the minimum qualifying credit score for this product.
- Are you or your spouse (Co-borrower) eligible veterans? If either of you are eligible veteran’s, down payments as low as $0 may be available up to the maximum amount your debt-to-income ratio VA will allow – there are no maximum loan amounts as per VA guidelines. Most lenders will go up to $1,000,000 and review higher loan amounts on a case by case basis. If not an eligible veteran, the FHA down payment is 3.5% up to the maximum FHA lending limit for your county.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
Browse by Date: